RBA Raises Cash Rate +25 bps to 4.35% — Third Consecutive 2026 Hike (8-1 Vote); Australia Inflation 4.6%; Iran War Energy Pass-Through Forces Reversal of 2025 Cuts

The Reserve Bank of Australia (RBA) raised its cash rate target by 25 basis points to **4.35%** at its May 2026 meeting — the **third consecutive rate increase of 2026** — effectively reversing all three rate cuts made in 2025 and returning the Australian cash rate to its previous cycle peak. **RBA May 2026 decision:** - **Decision:** +25 bps hike to **4.35%** (target range 4.35%) - **Vote:** **8-1** (overwhelming majority; one member voted to hold) - **Prior decisions in 2026:** +25 bps in February, +25 bps in March (reversing the December 2025, November 2025, and September 2025 cuts) **Key metrics driving the hike:** - **Australia headline CPI:** **4.6% YoY** (year to March 2026) — nearly 2.6pp above the RBA's 2-3% target band mid-point; Iran war energy shock drove utility and fuel costs sharply higher - **Trimmed mean (core) inflation:** ~3.5% — also above target - **Unemployment:** ~4.2% — labor market remains relatively tight **Governor Bullock's statement:** 'The Board recognizes that inflation at 4.6% is unacceptably high and that the energy price shock from the Strait of Hormuz disruption has produced second-round effects that are now embedding inflation across services, transport, and utilities. The Board is determined to return inflation to the 2-3% target band and will do what is necessary.' **Market pricing and forecasts:** - Westpac and CBA economists base case: **two more hikes** in June and August 2026 (to 4.85%), followed by a hold into 2027 before eventual cuts as global energy price pressures abate - ASX 30-day interbank cash rate futures: pricing ~80% probability of a June 2026 hike to 4.60% **Global central bank context:** The RBA hike reinforces the 'higher-for-longer' global monetary policy regime being driven by the Iran war energy shock: - **Fed:** On hold at 3.50-3.75% (FOMC Apr 29, 2026); Warsh Senate vote week of May 11 - **ECB:** On hold at 2.00% (Apr 30, 2026); June hike under debate - **BOE:** On hold at 3.75% (Apr 30, 2026; 8-1 vote, one hawkish dissenter) - **BOJ:** On hold at 0.75% (Apr 28, 2026; 6-3 split, three hawkish dissenters calling for immediate hike to 1.00%) - **RBA:** **Actively hiking** — alone among G7+ central banks in tightening as of May 2026